Florian Wagner Von Papp ‘Competition Law in EU Free Trade and Cooperation Agreements (and What the UK Can Expect After Brexit)’ European Yearbook of International Economic Law, Forthcoming

This paper – which can be found here – focuses on the interplay between trade and competition from a competition perspective. Its basic argument is that the more integrated a trade area is, the more similar competition rules are likely to be, and the easier it will be for international cooperation to occur. The focus of the paper is on demonstrating how this occurs in practice, by looking at “the concentric circles of cooperation around the EU by examining the intergovernmental and inter-agency agreements concluded by the EU to face the complexities of the transnational economy of the 21st century.”

Section 2 contains a short overview of the relationship between free trade and competition law.

Free trade interacts with competition law on many levels, and their relationship is mainly symbiotic and self-reinforcing. However, competition and trade law conflict at points.

Free trade should increase competition, since market entry by foreign competitors undermines domestic market power. Competition law is then useful to deal with potential reactions against increased competition caused by free trade, such as domestic collusion to exclude foreign entrants. However, on occasion free trade and competition may come into conflict: “On an abstract level, the goals pursued by (and mind-sets of) trade lawyers and competition lawyers are different. Trade lawyers are generally primarily focused on protecting the interests and welfare of their home jurisdiction’s domestic industry, that is, its producers and exporters. For public choice and collective action reasons, they are generally less focused on their home jurisdiction’s consumers, and consumers abroad do not figure in their calculation at all. The focus of competition lawyers tends to be total welfare and the process of competition, at least in their home jurisdictions, but potentially also, though to a lesser extent, abroad. Trade lawyers, on the other hand, have a greater focus on domestic producer welfare”. This conflict can come into focus regarding certain practices such as predatory pricing – competition lawyers would normally not worry about prices being lower in an export market than in the exporter’s home market, while trade lawyers would call this dumping against the domestic industry in the export market – or export cartels – almost universally condemned from a competition law perspective, yet tolerated or even actively encouraged by trade lawyers because it attenuates the competitive pressure on a state’s domestic industry.

Section 3 seeks to identify which competition issues can be addressed through unilateral extraterritorial enforcement, and which ones require international cooperation. It begins by reviewing the legal doctrines in the US and the EU that allow (and limit) extra-territorial enforcement. We will deal with this in more detail next week, so I’m not going to cover it here. The interesting bit is how Florian uses these tests to identify the limits of competition law when dealing with conduct with cross-border effects. These limits can be:

Legal, such as (a) cases where there is foreign state involvement (which is the topic of the last paper of this email); or (b) cases where competition law enforcement is precluded by the lack of powers to sanction foreign conduct (i.e. “ The EU and US can prohibit import cartels as much as they want, but this does not allow them to take investigatory (or sanctioning) measures on foreign soil’);

Factual, arising from: (a) not all antitrust jurisdictions and authorities having the capacity to apply their laws extraterritorially; (b) foreign actors often not being aware, and hence not being deterred, by foreign competition rules.

Conversely, the extra-jurisdictional reach of competition law can lead to overlaps in competition enforcement. The classic example of this are multijurisdictional merger filings. Since the clearing of a merger in all affected jurisdictions is usually a sine qua non for proceeding with the transaction, the most restrictive jurisdiction will set the tone, imposing serious costs on businesses. Similarly, cartels are prosecuted and sanctioned in several jurisdictions, and are not always sanctioned solely on the basis of the harm they have caused in the relevant jurisdiction.

Section 4 examines how the EU has sought to deal with these limitations of competition law by integrating competition law into Free Trade Agreements, Association Agreements and intergovernmental and inter-agency cooperation agreements. It is argued that the EU has reduced the complexity of competition law at the global level by: ‘staggering the intensity of cooperation in concentric circles according to the degree of homogeneity of competitive conditions and interests: extremely intensive regional cooperation between the competition authorities within the EU at the core, very intensive cooperation with the EFTA Surveillance Authority in the EEA, intensive bilateral cooperation with Switzerland, close cooperation with various potential candidates and candidates for accession and certain Euro-Mediterranean and other neighbouring states, and generally less detailed cooperation with states further away, albeit with selectively deeper cooperation with important trading partners such as Canada, Japan, Singapore and South Korea.’

Section 5 looks specifically at Brexit. The reason for this is that: “Brexit turns the development towards greater cooperation described above on its head. The UK will exit the integrated EU and lose the benefits of the information exchange and close cooperation within the European Competition Network.” It contains a number of interesting details about the implications of Brexit for UK competition law, but it is not really relevant for the paper’s ultimate argument – that : “if other regions followed this [EU] example of concentric circles with intense cooperation at the centre that eliminates internal gaps and overlaps to the greatest possible degree, and gradually decreasing cooperation with other areas in which the competitive conditions and interests are not as homogeneous, then this global network of nodes and links would, while not eliminating gaps and overlaps, arguably reduce them to a manageable level.”

If this proposal was adopted, the result would eventually be a network of clusters around some nodes (i.e. trading partners following a common model). Within each cluster, gaps and overlaps in enforcement could be reduced to the greatest possible extent.

Comment:

I have to say that I really like the argument being made. The idea of promoting ‘clusters’ seems like an interesting via media between purely bi-lateral coordination and the centralised/multilateral approaches that have been attempted – and that have failed – at WTO level. The idea also makes more descriptive sense of the current status of competition law around the world than any other I am aware of. Lastly, the paper provides a good intro to the interaction between trade and competition law, and its practical implications – issues to which most practitioners are oblivious.

Nonetheless, I have a few issues with the paper as it stands (it is clearly still a draft). First, I would expect that the argument in section 3 about problems arising from the overlap of multiple unilateral enforcement action to be better developed. Second, while the idea of “concentric circles of antitrust” seems plausible to me from a descriptive standpoint, I have doubts about how attractive it is as a policy recommendation, particularly given the diminishing allure of free trade agreements. In other words, the normative proposal is theoretically attractive, but seems to be proposed at a time in which it is unlikely to come to fruition.